GIC Sues Merck Over Fraudulent Share Prices

One of Singapore’s sovereign wealth fund has claimed the drugs company made misleading statements on two anti-cholesterol drugs, artificially inflating the share price.

(January 30, 2014) — GIC has filed a fraud claim against one
of the world’s largest drug companies, claiming it misled the market on two
statin drugs, pushing the price of the stocks up as a result.

In particular, GIC has accused Merck and subsidiary Merck-Schering-Plough,
the makers of cholesterol-lowering drugs Zetia and Vytorin, of failing to tell
the market about the “unqualified disaster” results of clinical trials, which
found both drugs had no additional benefit to slowing the progression of
arteries being clogged up by high cholesterol levels.

The case relates to a 15-month investment period between December
6, 2006 and March 28, 2008, during which GIC bought millions of shares in
Merck, according to court documents filed at New Jersey’s district court.

The clinical trials for the drugs were completed in 2005 and
early 2006, before GIC’s investment period, but the manufacturers deliberately
delayed the results from hitting the market, according to GIC.

By 2007, the plaintiffs alleged, certain medical internet
forum members were suggesting that the drug companies knew the results “were a
bust”, but the general public could not know about this until 2008, when
specific studies mentioned in the posts were substantiated by Merck and
Schering-Plough.

The plaintiffs then alleged that the drug companies
deliberately attempted to change the primary goal of the drugs at the clinical
trial, skewing the results to focus on the site of the arterial wall most
favoured by Vytorin. The companies were later forced to abandon this idea when
the medical regulator FDA and Congress came down hard on them.

After Congress became involved, and news of a congressional
investigation into the defendants’ withholding of data surrounding the drugs
hit the media, Merck’s share price began to drop from $60.55 on January 11,
2008 to $47.79 on January 25, wiping out $25 billion of Merck’s capitalisation.

When Merck revealed the full results of the clinical trial
on March 20, 2008, the share price fell further still, closing at $37.95 on
March 31, 2008. This marked a 38% drop in share price from the January highs of
more than $60 a share.

GIC argued the delay in the release of these results allowed
Merck to reap “hundreds of millions of dollars” in sales of Vytorin which would
not have been made had the public known the details earlier.

A similar situation occurred with the other drug Zetia, where
trials proved that when it was combined with Zocor (another drug), there was no
additional benefits in terms of removing more arterial plaque.

Two individuals are also being sued, Richard Clark, the
chairman of the board at Merck from April 2007 to December 2011, and Deepak
Khanna, senior vice-president of the Merck-Schering-Plough joint venture. Merck
acquired Shering-Plough in 2009. Today it is known as Merck and Co.

GIC alleged these two people wielded power within the
organisations, had access to information before the public, and profited from
being able to sell their shares at a higher price before the news of the trials
became public.

“Merck insiders”, as the legal filing termed them,
collectively made $26 million by selling their shares before the results of the
trial were publically released, and Clark himself sold $2 million worth of
shares in May 2007, having had no previous history of selling shares in the
company.

Kirby McInerney, the legal counsel for GIC, has demanded a
jury trial for undisclosed damages caused to the sovereign wealth fund.